When news spread last week that Spotify had filed papers to start selling its shares on the New York Stock exchange, listeners may very well have tuned out. Is there any phrase more antithetical to the rock’n’roll spirit than “initial public offering”? But what happens to Spotify matters for the future of music, particularly at this turning point in the format wars. Streaming now makes up more than half of the industry’s revenues, and Spotify has more paying subscribers than any other streaming service. The 10-year-old Swedish company sets the pace.
Whenever a company goes public, it’s a big shift that imposes the notoriously short-term demands of the stock market onto it. Though Spotify has been valued as high as $20 billion, it hasn’t been profitable yet; its net loss approached $600 million in 2016. While investors won’t expect Spotify to deliver a positive bottom line right away, they’ll need to see ongoing growth to the subscriber base. They’ll likely also want Spotify to show that it has ways of making money that don’t require royalty payouts to labels and artists. (It’s telling that Spotify’s two biggest competitors, Apple and YouTube, have much bigger businesses to help insulate them from market pressures.) And since what Spotify’s planning isn’t technically an IPO (but rather a rare direct listing), they won’t raise a bunch of fresh capital in the deal. Basically, don’t expect them to start throwing money at risky new projects all of a sudden—not that that’s Spotify’s usual M.O. anyway.
While Spotify is expected to start trading on the NYSE by the end of March, the move has been delayed before. Perhaps they’d have reason to delay it again: Last week, just before word of their filing got out, Spotify was slapped with a $1.6 billion copyright-infringement lawsuit by the music publishing company Wixen. But Spotify needs to go public before too long or it could face crushing loan repayments. Whenever Spotify makes its Wall Street debut, here’s what users could be in store for down the line.
New Releases Behind a Paywall
The industry calls it “windowing.” Major labels and top-tier artists have long wanted to restrict new albums from being played on Spotify’s free tier for a certain period of time. The logic was both moral—music should be paid for—and coldly economic, given that most of the record industry’s streaming revenues come from subscriptions. The inability to limit music to paid tiers was famously a deal-killer between Taylor Swift and Spotify back in 2014, and other boldface names from Adele to Coldplay have kept new music back from all of Spotify for various lengths of time, too.
Last year, Spotify struck a series of licensing deals specifically in preparation for going public, and in a major concession, it announced that it would allow some artists to restrict new albums to paying subscribers for the first two weeks of release. With this new, IPO-minded deal in place, look for A-listers to start putting this window to use—and get ready to either wait them out or fork over $9.99 a month.
More Products Besides Streaming Music
Some of these ancillary businesses Spotify could develop to meet investors’ demands will probably be behind the scenes. One proposal is selling data to live concert companies, which would surely prompt privacy concerns (which Spotify previously staved off in 2015). Another idea is offering more services to labels and musicians, perhaps expanding on its existing “Spotify for Artists” app. You don’t have to worry about Spotify’s free tier going anywhere, either—the company has lofty goals for selling ads for us all to sit through, with its sights set as as high becoming the world’s No. 3 ad seller behind Google and Facebook.
Most intriguing, though, are Spotify’s tentative steps into other fan-facing business areas. A partnership with a band merchandise provider called Merchbar already allows artists to sell stuff through their Spotify pages. Spotify has stepped into podcasts and video, hiring a new head of the department away from Disney even as it abandoned some early, seemingly less-focused video attempts last year. There could even be Spotify-branded smart speakers: A recent corporate job listing called for a hardware exec to oversee “a category-defining product” compared to Amazon Echo.
Spotify: The Record Label?
Whatever Spotify does, it will want the results to be more like video-streaming giant Netflix—also public, and soaring—and less like online radio pioneer Pandora, which has seen its share price tumble since its own IPO in 2011. One giant advantage Netflix has: It produces much of its own content, lowering its licensing payments. This will be a fine line for Spotify to walk, so that it doesn’t risk alienating record labels by acting too much like one itself. Last year, the streaming giant bought an online music studioandunveiled an A&R-like program to “identify and break the next wave of music superstars” (though the picks weren’t exactly plucked from obscurity). With the extra clout of a public company, Spotify could eventually take the next step and start signing artists to distribution deals directly—an idea that has already been suggested.
More Transparency = More Criticism
Going public and filing quarterly earnings reports will shine a light on how much Spotify executives and shareholders earn compared to the company’s long-criticized payouts to artists. Maybe increased tensions between creator and seller seem like a minor side effect, but musicians who aren’t part of the industry’s commercial elite already have enough reasons to feel jilted by Spotify. Its playlists have been found to be heavy on tracks from a once-obscure Swedish company with a shared investor and even heavier on tracks from major labels. Across all services, more than 99 percent of streams last year came from just the top 10 percent most-streamed tracks overall, according to data tracker BuzzAngle Music. And Spotify continues to flirt with “pay for play,” raising specters of old-school payola. Going public is Spotify’s next step in turning music streaming fully into the status quo, and the biggest players should now be on board. With the added financial transparency, underpaid artists should have plenty more reasons to object, and perhaps quietly seek out alternatives. But they’ll be going up against the new establishment.